Merril Lynch Downgrade Facebook Amid Data Storm

In another blow to Facebook’s stock market value following the Cambridge Analytica scandal, Bank of America Merrill Lynch has slashed their price target on Facebook shares from $230 to $165. The social media giant has already seen $45 billion wiped off their stock value this week over the space of few days.

Zuckerberg Not Done Enough

Explaining the rationale behind this decision, Bank of America Merrill Lynch analyst Justin Post wrote in a note to clients saying that the bank felt Mark Zuckerberg’s belated statement would not be sufficient to contain the groundswell of negative sentiment that has built up as result of the scandal.

“We think Zuckerberg addressed the issues and a long recovery process can start. That said, there was nothing that could be said to appease the most vocal critics, the mainstream backlash will persist as Cambridge Analytica remains in the headlines, and we would expect some impact to near-term platform usage.”

Live FB Price Chart (5 Mins)

Buy Rating Remains

Post maintained that Facebook stock would still retain a Buy rating but warned the public outrage and the negative sentiment could damage Facebook’s financial results for the year.

“With ‘#deletefacebook’ hashtags trending and the onslaught of negative Facebook headlines (Uber had a similar situation last year), we have to consider the potential that some portion of users reduces usage of the platform. In terms of ad targeting, we see a medium-term risk that additional user permission management and reduced consent … and as a result, ad pricing growth could trail our estimates.”

Even before the Cambridge Analytica story broke, Facebook had been dogged by slowing growth and declining popularity with millennials. And this type of scandal is highly likely to be toxic to the brand with this demographic. Facebook was expected to experience a 5.6% to 9.3% fall in its user base among the under 25’s this year, according to research conducted by eMarketer, and that was before the scandal emerged.

In the long-term, there could also be problems further down the line for Facebook as result of the Cambridge Analytica scandal, as lawmakers in the US, UK and Europe are launching investigations with the spectre of enhanced regulation looming, a regulation that could curtail future growth. On the bright side, Facebook does have lots of investments in other companies and owns other social media companies like Instagram and Snapchat that are rising in popularity and have not been tainted by the Cambridge Analytica scandal.